Daiwa Mutual to sell portfolios, but may retain MF licence here

MUMBAI: The board of Daiwa Mutual Fund (MF), the Indian asset management of Japan's Daiwa Securities Group, will sell its schemes but may retain the MF licence. The group has decided to adopt a 'scheme transfer' method to exit its domestic fund business. The company will soon start looking around for potential buyers for the fund portfolios, said a source close to the development.

The Daiwa board has chosen to cut down India exposure amid "difficult business conditions"; instead, it will focus resources on the group's overseas fund management and advisory business. In 'scheme transfer' deals, the fund house will sell its existing domestic portfolios to interested buyers.

As on September 30, Daiwa Mutual managed assets worth Rs 789 crore across three debt funds and one equity fund. Daiwa Industry Leaders Fund - the large and mid-cap equity portfolio - has assets worth Rs 30 crore. Daiwa's debt and liquid portfolios manage assets worth Rs 6.11 crore and Rs 753 crore respectively. According to industry experts, Daiwa may get 1 - 1.5% for it equity assets and about 0.20 - 0.40% for its debt and liquid assets. Though Daiwa may exit its domestic fund business, it will continue to have a toehold in India to manage the asset manager's offshore funds and advisory business.

The Japanese asset manager has offshore portfolios worth $275 million, down about $525 million from peak levels. Daiwa officials declined to comment on the story. "As a matter of policy we do not comment on market speculation," the spokesperson of the fund house said.

Daiwa Mutual Fund started its India operations in 2010 when it acquired the fund assets of the Shinsei Bank-owned Shinsei Asset Management Company. Daiwa Mutual, according to industry sources, paid over Rs 48 crore for buying out Shinsei AMC which at the time of the deal had asset worth Rs 450 crore.

"Scheme transfer is an easy way to sell fund house assets. It reduces legal formalities by a good measure. Scheme transfers can only happen with an existing player (fund manager)," said Dhirendra Kumar, managing director of fund tracker Value Research. "As it is not an AMC-level deal, the company that is buying the schemes need not effect an elaborate due diligence process. Scheme transfer is the quickest way to sell mutual fund assets," he said.

Other scheme transfers deals that have happened in India are Zurich - HDFC Mutual, Alliance - Birla Sun Life, Apple - Birla Sun Life, and Bank of India - Taurus Mutual. Daiwa reduced its operational losses from Rs 18.17 crore in 2010-11 to about Rs 2.65 crore last fiscal. The fund house has chosen to stay back without a fund management business because it does not want to close India operations with losses, said a source.

"Post the scheme transfer, the fund house will exist in India with a very lean staff. It will meet expenses through earnings from its offshore advisory business and proprietary investments in Indian assets," said a source close to Daiwa Mutual.

Tough business conditions are promptingAMCs to rope in strategic partners or exit asset management business completely. In March this year, Fidelity sold its entire asset management business to L&T Mutual Fund. Religare, Reliance Mutual, Axis Mutual, IDFC and LIC have tied up with stronger global players like Invesco, Nippon, Schroders, Natixis Global and Nomura respectively, over the past few months.